Investing and preparing for your financial future is very important. While it can be good to invest in the stock market and other securities, investors should also consider another type of investment.
Investing in real estate and building a portfolio be one of the best ways to generate long-term wealth! However, there are various basics of real estate investing to consider when getting into your first real estate investment. Read insights here from our Jacksonville property management team!
What Is Real Estate Investing?
Investing in real estate involves the purchase, management, leasing, development, or sale of real property. This can include land, single-family homes, townhomes, condos, or commercial properties. There are various ways that real estate investors can generate revenue from properties, including making rental income, renovating a property to add value before selling it again, or buying into real estate investment trusts (REIT).
Choose an Active or Passive Investment
As you are looking for any type of real estate investment, investors should research how they want to be involved with real estate. Investors can choose active or passive investments.
A passive investment requires little work other than the initial investment. However, for many investors, real estate can become a much more active investment than they realize. There is work involved when it comes to renovating a property, marketing and leasing it, and making repairs.
If you have limited time to dedicate to your real estate investment, looking for something more passive is a good idea. However, that doesn’t mean you can’t own and operate rental properties to generate passive income!
One way to make any real estate investment more passive is by hiring a property manager to help by overseeing the management of the property. While property management services come with a fee, they can free up a lot of your time and allow you to scale your investment business. You also can invest passively in real estate by being a silent investor through crowdfunding platforms or even investing directly into REITs.
Decide How You Will Make Money
There are three main ways to collect revenue from your real estate investment properties. These include:
- Interest from loans when financing investments for other property owners
- Appreciation from the sale of properties (including fix-and-flip investments)
- Rental income
Before you purchase an investment property, make sure you have a solid plan in place to make money and grow your investment portfolio.
If you choose to make your money by renting out a property, it’s important to remember that owning a rental property is an active form of real estate investing. Rental properties require time, dedication, and daily involvement for success. For example, when a tenant files a maintenance request, it’s a property owner’s responsibility to resolve the issue. Likewise, you will be responsible for keeping the property in livable condition and finding good tenants to fill it.
Many investors that choose rental properties partner with a property manager to handle these tasks (and more)!
Understand the Market Data
No matter what type of real estate investments your choose, it’s critical to research and understand market data. In a strong market, investors have plenty of demand and interest from renters and can command a higher rental rate for rental units. However, it can be hard to keep your property occupied in a struggling market without lowering the monthly rent amount.
Property owners can find information about the market by reviewing real estate websites that offer information, including average vacancy and rental rates in the area. A property manager can also help you with market research and understanding it. You should also consider changes coming to the market that could influence future cash flow and value. These can include new construction, infrastructure investments, or new employers coming to the area.
Know Your Numbers and Financial Projections
With any real estate investment, knowing the revenue potential, costs, and long-term profitability is very important. By understanding and analyzing your market, you can get a sense of what your potential revenue could be each year based on vacancy rates and average rental rates. The costs of a real estate purchase are also very important to factor into calculations for return on investment.
Common costs included in a real estate investment include:
- Real estate taxes
- Landlord insurance
- Maintenance
- Utilities
- Property management fees
A property owner should also set cash aside each month into a reserve fund for future repair needs and potential vacancies. If you’re not sure how to estimate costs or rental income for a rental unit, a property manager can help!
Get Started Investing in Real Estate With a Jacksonville Property Management Company
When wondering how to get into real estate investing, understanding the basics can help ensure you make a quality investment for long-term success. By following these basics of real estate investing or learning more through various real estate investing books, you can make informed decisions that deliver excellent returns!
Learn more about how residential property management services are the best way to operate successful rental properties when you reach out to Spectrum Realty Services!
Learn more expert insights about real estate investing! Download the free “How to Invest In Real Estate Guide.”